2014 (10) TMI 697 - AT - Income Tax

Addition of excess consumption of diesel - Whether the CIT(Appeals) has erred in not considering the deletion of addition of ₹ 3,58,15,876/- on account of excess consumption of Diesel without appreciating the facts brought on record by the A.O. and only upholding the addition of ₹ 1,20,000/-on account of personal use of diesel in the diesel car owned by the assessee Held that - As per AO, the consumption of diesel was excessively high in comparison to the earlier years - CIT(A) allowed the claim of the assessee by deleting whole addition except ₹ 1,20,000 on the ground of personal use of diesel in the car owned by the assessee - the AO has made disallowance presuming that the consumption of raw material was 1,07,049.45 quintals which was of wheat only - The AO ignored a very important fact that the assessee was not doing only processing of wheat for manufacturing of atta, suji and maida upto AY 2006-07 but during the year under consideration i.e. AY 2007-08, the assessee also started the processing of choker for producing superfine choker/bran which had been sold for ₹ 6,03,38,004/- during the year - the assessee has processed 1,86,207.04 quintals of choker for production of superfine choker/bran which process also uses diesel - The AO has not considered the consumption of diesel for the purpose of manufacturing of superfine choker/bran by processing of 1.86 lakh quintals of choker - as per expert advice for production of better quality of choker etc., the assessee needed load of 625 KVA against existing load of 385 KVA but despite application and efforts by the assessee, load was not increased during the year - the assessee got connection of 625 KVA on 26.05.2009 beyond the period of financial year under consideration. The assessee maintains proper records to show the purchase and consumption of diesel for its business purpose which justifies the increase of consumption of diesel during the year the AO has formed opinion for disallowance on incorrect and incomplete facts and also by ignoring and not considering other important evidence submitted by the assessee to support its claim - CIT(A) has granted relief for the assessee but the findings are not based on cogent and justified reasons - the AO should have considered some substantial and cogent evidence submitted by the assessee to verify its claim pertaining to the diesel consumption - The AO ignored verification of diesel consumption log book, purchase of generators, boilers and six body chakki installed during the year for production of better quality products - The AO also ignored a very important fact that besides production of atta, suji and maida, the assessee also started production of high quality choker/bran during the year for which the assessee required increased load of electricity and power which the assessee could not get during the year and maximum use of power was based on generators - The AO also ignored another important fact that there was load shedding during the year and on the other hand, the assessee was compelled to install generators, boilers and other equipments to meet the decreased supply of electricity and increased use of power during the year thus, the matter is to be remitted back to the AO for verification of correctness of claim Decided in favour of revenue.

Issues Involved:
1. Deletion of addition on account of excess consumption of diesel.
2. Ignoring the remand report submitted by the Assessing Officer (A.O.).
3. Granting relief without giving cogent reasons.
4. Not appreciating comparative figures of power and fuel consumption.
5. Request to set aside the Commissioner of Income Tax (Appeals) [CIT(A)] order and restore the A.O.'s order.

Detailed Analysis:

1. Deletion of Addition on Account of Excess Consumption of Diesel:
The Revenue challenged the deletion of Rs. 3,58,15,876/- by the CIT(A) on the grounds of excess diesel consumption. The A.O. had disallowed this amount based on the sharp increase in diesel consumption compared to previous years. The assessee justified the consumption by explaining the use of additional generators and boilers due to increased production processes and power outages. The CIT(A) accepted the assessee's explanation, noting the purchase of diesel from verified suppliers and the maintenance of a logbook monitored by district authorities. The Tribunal, however, found that the A.O. ignored significant evidence such as the logbook and the expert's report, and remanded the issue back to the A.O. for re-examination.

2. Ignoring the Remand Report Submitted by the A.O.:
The Revenue argued that the CIT(A) ignored the A.O.'s remand report, which stated that the assessee had been given sufficient opportunities during the assessment proceedings. The CIT(A) countered that the remand report did not specify which documents were considered fresh evidence and emphasized that the expert's opinion and Sales-tax order were provided to clarify the facts, not to introduce new evidence. The Tribunal noted that the A.O. had not pointed out any defects in the books of accounts and that the CIT(A) had the authority to consider additional evidence under section 250(4) of the Income-tax Act, 1961.

3. Granting Relief Without Giving Cogent Reasons:
The Revenue contended that the CIT(A) granted relief summarily without addressing the A.O.'s findings. The CIT(A) had observed that the assessee's books of accounts, including the logbook and vouchers, were complete and verified by district authorities. The Tribunal found that the CIT(A) had considered various factors, including the expert's report and the increase in the Gross Profit (GP) rate, which justified the diesel consumption. However, the Tribunal directed the A.O. to re-examine the evidence and the assessee's claims.

4. Not Appreciating Comparative Figures of Power and Fuel Consumption:
The A.O. compared the diesel consumption figures with previous years and found a significant increase. The assessee explained that the increased consumption was due to the use of additional machinery and power outages. The CIT(A) accepted this explanation, noting that the assessee's GP rate had improved. The Tribunal observed that the A.O. had not considered the full context, including the production of superfine choker and the use of additional equipment, and directed the A.O. to re-evaluate the evidence.

5. Request to Set Aside the CIT(A) Order and Restore the A.O.'s Order:
The Revenue requested that the CIT(A)'s order be set aside and the A.O.'s order be restored. The Tribunal found that both the A.O. and CIT(A) had not fully considered all relevant evidence and directed the A.O. to re-examine the issue, taking into account all the facts and evidence presented by the assessee.

Conclusion:
The Tribunal remanded the issue of diesel consumption back to the A.O. for re-examination, directing the A.O. to consider all the evidence and provide the assessee with an opportunity to be heard. The appeal was disposed of for statistical purposes, and the A.O. was instructed to verify the correctness of the assessee's claims regarding diesel consumption.

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